September will be remembered by many investors as an unsettling month.  But, as a trader, I don’t care much about which direction the market is going — as long as it’s going somewhere.   Like August, September had more than enough action and produced outstanding results at 35.24%.

Buy and hold investors took their lumps, as the S&P 500 slumped 2.6% and many other indices much more.  And, swing trading was nearly impossible due to the constant reversals.  But, day traders found plenty of opportunities among the frequent, huge swings.  The challenge was in figuring out which moves would play out, as there were many head fakes — particularly at the daily close.

The daily chart reflects the overall choppiness……but, the 60-min chart provides a much better sense of the crazy, intra-day swings as well as the gaps up and down at nearly every opening bell.This led to more frequent trading than I’d like.  But, the results were positive.  So, we’ll take the bad with the good, and pray for more trending markets going forward.

Gap Openings

There were 21 sessions in September.  The median move in the first hour alone was 20.4 points — most of them gaps higher or lower.

In fact, 17 of the 21 gapped higher or lower by at least 10 points at the bell.  And, trends were very hard to come by — with huge gaps lower one day frequently followed by sizable gaps higher the following day.

Intra-day Volatility

During September, the median daily range was a whopping 35.8 points.  The smallest daily range was 14.8 points and the greatest was 67 points.

The graph above depicts the daily range and whether the day was positive or negative.  It shows pretty clearly the unbelievably high whipsaw quotient for the month.

The Culprit

Our old friend USDJPY was responsible for most of the volatility in September.  The pair, which dictates almost all moves in the “markets” these days, was stuck in a Pennant Pattern which straddled the most important Fib level on the chart: the .618 Fib at 120.11.

By  bouncing back and forth between the upper and lower bounds, USDJPY guaranteed that stocks would also bounce back and forth — making big moves with lots of volatility, but no net gains.

Results

September’s results came in at a strong 35.24% — much higher than we would expect in a less volatile period such as earlier in the year.  Unfortunately, these results came at the expense of much greater activity.  We averaged 6.5 calls/day, which is at least twice the number I would prefer.  This was partly a result of the enormous volatility, and partly a result of the head fakes that continue to be so prevalent.

HFT’s and algos were quite active in the midst of all this volatility, particularly when a recovery from a sizable plunge was required.  Predatory algorithms, such those which push prices past an obvious reversal point and then reverse, after traders are stopped out, continue to plague the “markets.”

Drilling down into our daily activity, about half of our gains were from moves that were less than five points.  These accounted, however, for only 1/8th of our monthly return. So, eliminating some of these would be a desirable trade off.  I think it’s safe to say that most folks would have been fine with a 31% month involving half the number of trades.

Some of them can’t be eliminated — they’re the result of a bigger opportunity that’s scuttled by an unanticipated reversal.  In these cases, I’d rather close the trade quickly than suffer a loss.  At other times, it’s entirely possible.  If the upside potential from a trade is only a few points, I’ll try harder to ignore it in the first place.

Five points is probably a good threshold.  With a 10-pt threshold, by comparison, the number of trades would have been reduced by 85%, but the results would have been reduced by more than half.  Since our membership includes traders and investors with a variety of styles and time frames, I will endeavor to better define the size of the expected move when making a call.  That way, members may make their own decisions as to whether to pursue it.

A reminder: our membership promotion is officially under way. Save over 50% on an annual membership that protects you against future price increases.  It works out to about $3/day, not a bad price for some pretty terrific results. To sign up, CLICK HERE.

For those contemplating joining and wondering what a trading session is like, I’m going to open up today’s session to the public.  Follow along and we’ll see how it turns out.  So far, it’s looking like a better-than-average day.

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I spent much of yesterday afternoon bemoaning the constant nudges higher in USDJPY that prevented SPX from even tagging the most basic of all support levels — the 200-period moving average (SMA200) on the 5-min chart.

SPX was a given, but USDJPY just wouldn’t allow it  — spurting back up into a rising channel every time SPX started to falter.  I finally gave up on the backtest and suggested:

And, the 1900 mark would still be an option for tomorrow morning.  That feels like more of a long shot, given how hard TPTB worked to get the averages back to green.

USDJPY has obviously been responsible, and is offering no clues to its next moves.  But, a dip overnight would certainly make sense.  If you can hedge overnight, a short position seems not too crazy.

Guess what?  Given the wretched unemployment numbers just released, the rest of the world now realizes what we’ve maintained all along: there will be no rate increase in October — or any other month in 2015.

Needless to say, this was not positive for the dollar, which is cratering against the euro and the yen.  I anticipated a drop to test the bottom of the Pennant Pattern (the red dot.)  But, what we got was much, much more.

Since the stock “market” lives and dies per the USDJPY’s direction, futures are currently off 29 points.  It looks like we’ll get that SPX2000 tag after all!

Given that the USDJPY just suffered its biggest single decline since August 24, might we expect more?

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Note that while the pennant is broken — at least for the moment — USDJPY is nearing channel support (the white line.)  It can be better seen on the daily chart — as can the purple channel bottom also in the vicinity.  Though, I’ll readily admit that on a channel that’s so long (from 2011, in the case of the white channel) it’s hard to say exactly where the bottom is.Bottom line, look for USDJPY to grab onto these lifelines and prevent an even worse decline in stocks.

If they’re very clever about it, and start ramping ES and USDJPY as soon as the market opens, they might be able to hold SPX’s losses to that white dot at 1899.It’s important, because as we pointed out yesterday it’s also the neckline of a Head & Shoulder Pattern targeting 1875.

I think it’s going to be tough to hold, however.  Consider how ES still has a long way to go in order to effect a decent retrace of the Aug 24 bounce.  1840 would make a lot of sense.

UPDATE:  9:34 AM

Getting some support here at 1898, but not enough that I’d want to jump in and buy.  1893 looks like a better opportunity, with 1878 as the ultimate target  — one we’re not likely to hit today if USDJPY’s decline is halted at 118.85.For once, the selling pressure might just be too much for the carry trade to hold back.  We’ll find out as USDJPY nears the white channel bottom.UPDATE:  9:36 AM

UPDATE:  9:41 AM

If I’m early, the other target is the neckline at 1902.84.

UPDATE:  9:55 AM

Everything’s back under control. Reached 1893.70, but they’re having trouble pushing it just a little lower.  USDJPY and CL still being forced lower, so should get there — maybe even a headfake overshoot.USDJPY still edging lower…UPDATE:  10:01 AM

That’s the problem with made to order “markets.”  When, USDJPY slows down, everybody knows a bottom is forthcoming.  And, no one wants to be the sucker to sell 30 cents above it.  Now, USDJPY will need to overshoot the bottom if they want SPX to tag 1893.03. If they can’t do it on this try, they’ll probably give up and wait for the SMAs to catch up and force it lower.

UPDATE:  10:07 AM

USDJPY just reached the purple channel bottom as well.  Should get a bounce any second. 

Just be aware that the 5-min SMA10 is approaching, and it sometimes exerts additional downward pressure.  Set your stops accordingly.  It wouldn’t be a bottom without a headfake or two.

Note that CL is getting into the act, pushing down — if even temporarily — below a key channel midline.  This suggests the downside isn’t done, but no guarantee it’ll be effective.

UPDATE:  10:16 AM

SPX back to the neckline and backtesting the SMA200 as USDJPY’s SMA10 catching up to it.  Last chance (for now) for a push lower.

If it retreats from the neckline, I’d consider another short position — but, only if USDJPY and CL support it.  And, at present, they’re not.  They’re both hanging around their SMA10s and going sideways.  And, SPX is back out of the purple channel — which can be considered a bullish backtest if it holds.  Next test for SPX is the SMA200 at 1905.65 — just beyond the neckline.

We’ll see how it does when USDJPY’s SMA200 arrives on the scene — which is about 1 minute from now.  A rally in USDJPY would require a bullish SMA10/20 cross.  And, that’s obviously easier to effect when the SMA20 is nearby.

UPDATE:  11:02 AM

SPX just tagged a red channel line and should take a breather here to let the SMAs catch up.  Could be worth shorting, but probably not more than a backtest of the SMA200, and it could be as little as a few points to the SMA100.  The .236 at 1914.16 is probably the better place.UPDATE:  11:07 AM

I’d look, first, for the intersection of the 10, 50 and 100-periods SMAs coming up at around 1910.43.  And, if that fails, the SMA200 at 1906.65.UPDATE:  11:20 AM

UPDATE:  11:38 AM

SPX taking a breather, waiting for the SMA10 to come along.  It should be a good guide for stops.

From here on, SPX’s goal is 1927.22, to bust the H&S Pattern by establishing a higher high.  The narrative must be changed from the failing carry trade to the probability of easier money from the Fed.

UPDATE:  11:50 AM

This is that time of day when things get kinda muddled.  We’re waiting for the SMA20 to catch up, USDJPY just ran into its  SMA50, the channel is in danger of breaking down.  It’s a good place to tighten up stops.

I don’t advise specific numbers, but go with what’s comfortable for you and your style of investing.  We’re up 30 points from our long entry, closer to 60 (+3.1%) if you held short overnight.

That’s a very good day, and not one you’d want to flush down the toilet if this turns into a Bat Pattern and goes to 1878.  I don’t think it will, at least not at this point.  But, you never know.  Nothing wrong with going to cash here and taking the rest of the day off.UPDATE:  12:01 PM

The problem with pushing higher at this point is USDJPY, which is about to run into the broken Pennant bottom.  If it has trouble pushing through, or hesitates much, stocks will get nervous and start selling off.

UPDATE:  12:09 PM Do or die time for USDJPY, which just pushed through the Pennant bottom – perhaps to get SPX to the red .146 at 1919.   If it retreats, look for SPX to follow along.  In other words, a potentially good shorting opportunity coming up.

UPDATE:  12:16 PM

…and, ES just reached its .618 retracement of last night’s highs. Look for USDJPY to backtest the Pennant bottom.Our 1927.22 target is just overhead, so tight stops are a very good idea.

UPDATE:  12:31 PM

UPDATE:  12:33 PM

I wouldn’t short just yet, as the typical MO is to wander sideways, with lots of random HFT-induced headfakes throughout the day, and finish the day at the highs.  1917.92 is a good target, as are the rising SMA100 and SMA200. UPDATE:  12:57 PM

Note, we’ve tagged the white .382 at 1928.81.  And, that very hard to see .618 at 1924.52 is a natural rebound for a Bat Pattern such as the one completed on Tuesday.  And, ES just reached the .786.UPDATE:  1:24 PM

Could get a bounce here if the midline is defended.  Best to dump the short here unless it pushes through.  The algos loathe giving up “hard-earned” gains, and the SMA20 at 1943.71 could be on this afternoon’s agenda.

Based on Friday’s highs, I might have drawn the falling red channel too low.  The midline might be closer to 1943 which, along with the .886 Fib at 1943.66, is a very appealing target.  Why not take advantage of some pretty impressive momentum to bag them now?

UPDATE:  1:43 PM

UPDATE:  2:17 PM

All dressed up and nowhere to go.  SPX still doing the crab walk……waiting for USDJPY to make up its mind.   The key Fib level of 120.11 is just overhead.  And, the promise of 120.11 is enough to keep stocks in the green.  If they tag it, there will be all sorts of expectations/complications.If they break the red channel, however, we’ll get some downside — even if it’s only a little.  4:00 is a long, long two hours away.

I suspect they’ll let USDJPY/SPX drift lower and pick up support from the rising SMA50 at 1921ish (blue dot) or the daily SMA10 at 1925.38 (white dot.)

Stay tuned.

UPDATE:  2:59 PM

SPX dipping below the channel midline at 1932.32.  Theoretical shorting opportunity for anyone who isn’t exhausted from this morning.  Should be good for 5-10 points.  USDJPY stuck going sideways, could still break either way.  So, if you play it, use tight stops. UPDATE:  3:09 PM

And, right back to the upside resistance.  The red channel line is around 1937.10 here.  If it’s broken, then 1943.66 should prove an attractive target — even if in the last 60 seconds.  But, this is silly time here. Why spoil a great day? I’m happy watching it without playing it.  UPDATE:  3:29 PM

There’s the .886/SMA20/channel tag we talked about in the 1:24 update.  Anyone who played this breakout should consider closing it here and getting started on your weekend.

If you’re a greedy bastard and aren’t satisfied with the 50 points since this morning’s call to go long, at least tighten up your stops.

If you’re feel incredibly lucky and want to temp fate, try shorting here into the close (1934-1939?)  But, if anyone asks, I didn’t say that.

EPILOGUE:

Pretty incredible day.  In all my looking around on the web over the past hour, I can hardly find anyone talking about USDJPY and the huge impact it had on the markets today — let alone its bounce at 10am at a critical support level.

In all, I show us scoring 70.39 points from last night’s close for a total of +3.69% in our theoretical SPX portfolio.  If you didn’t hold short overnight, it still amounts to 54.16 points for +2.85%.  Neither is shabby for an unleveraged, well diversified approach.

At +4.2% for the first two days in October, I might take tomorrow off.  But, I won’t.  Lots of charts to update after today.

For those who aren’t pebblewriter.com regulars, I wish I could say every day is like this.  This is probably the second best day we’ve had all year, falling short of Aug 25th’s +4.8%.  But, it’s just plain fun to produce gains when the market is tanking and the world is going haywire.

Whether it’s my service or someone else’s, I encourage investors to embrace both bullish and bearish markets.  In a volatile, go-nowhere market such as we’ve had since USDJPY flatlined in December, it affords opportunities to make money regardless of what’s going on.

Have a great weekend everyone.

P.S. I hope to get September’s results posted this afternoon.

A reminder: our membership promotion is officially under way. Save over 50% on an annual membership that protects you against future price increases.  It works out to about $3/day, not a bad price for some pretty terrific results.  To sign up, CLICK HERE.

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The leaks were flying fast and furious last night as everyone wants to know whether or not Japan will expand its QQE.  Bloomberg’s “unnamed source” insists it won’t – at least not any time soon:

Bank of Japan officials see little need for an immediate expansion of monetary stimulus and would prefer to hold off to get a clearer picture of the economic outlook, according to people familiar with their deliberations. 

Board members who gather for Oct. 6-7 policy meeting want opportunity to observe further economic data and developments in financial markets at home and abroad, according to the people, who asked not to be named because talks are private.

For those not on our distribution list, note that our membership promotion is officially under way. Click HERE for details on how to save over 50% on an annual membership that protects you against future price increases.

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Yesterday’s post title was a little tongue-in-cheek, as capitulation is normally thought of as a massive downward whoosh where the last remaining bulls panic and join the herd rushing for the exits.

In this case, I was thinking of the Bank of Japan, which is the key to this “market’s” recovery.  As we’ve maintained for the past six months, the yen carry trade has provided nearly all of the upside since 2011.  And, since USDJPY flat-lined last December, stocks have gone nowhere.

There’s a natural reticence on the part of the BoJ to further devalue the yen. It’s producing inflation (food and energy, which are not counted) but zero growth.  Even Abe’s closest advisor admitted last night that QQE has been an utter failure.  This was right before he went on to recommend expanding QQE.  From the Financial Times:

Japan needs more economic stimulus to stave off a serious shock from China, according to one of Prime Minister Shinzo Abe’s closest advisers.

Etsuro Honda, an architect of Abenomics in his role as special adviser to Mr Abe, said passing a supplementary budget to boost the stagnant economy was an “urgent task”.

“I don’t think we should call it a technical recession yet, but generally speaking, the Japanese economy is in a static situation,” Mr Honda said in an interview with the Financial Times. “It is not growing positively.”

As we discussed last month in Japan’s Equity Trap, Japan has no options other than expanding QQE.

They have amassed too much leverage, and used much of that leverage to accumulate ¥80 trillion in stocks — essentially on margin.  They are unwilling to write off those losses, so must do whatever they can to recoup them.

As the Nikkei reached our target zone yesterday [see: Update on NKD] the BoJ and GPIF were collectively sitting on losses of approximately $150 billion — about 3% of Japan’s GDP.

At yesterday’s low, NKD was testing the midline of a channel that goes all the way back to Aug 2010.  Each and every leg up has been driven by yen debasement or BoJ stock purchases.  Should it fail, it’s a long way down.That’s a big incentive to act, and to act quickly before things get even worse. The BoJ has a Monetary Policy Meeting next Tuesday and Wednesday, and another on October 30.  What will it take for them to pull the trigger?

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Welcome to our new Membership Sale!

This has become something of a tradition for pebblewriter.com.  We’ve done a few of them now, and they have proven very popular with both new and returning members.  It’ll run for the next few days.  The terms are pretty straightforward:

Ready to sign up?  Click HERE.

What’s New

This last feature is new.  Charter annual members will receive a free technical analysis report on the stock of their choice.  It will consist of 2-3 pages of charts and commentary, including 20-yr, 5-7 year and 1-year charts as well as a forecast for both bullish and bearish scenarios.  This same service will be rolled out to existing members in mid-October.

Lots of folks have a sizable position in certain stocks — the company where they work or used to work — and can benefit from knowing what the charts indicate about the future.  As always, no guarantees.  But, I’ll give you a couple hours of my best thoughts on the matter.

I’m also offering the same service as a stand-alone option to prospective members.  It will be coupled with a one-month trial membership — something folks inquire about almost every day.  The cost is $249, which is about $0.25/share on a 1,000 share position.

Help Me Help You

One other note: I do no advertising on pebblewriter.com.  There are no banner or pop-up ads.  I don’t sell or rent your email address or any other information to third parties.  I hate that kind of stuff, and assume you do, too.

So, I rely on current members to bring in new members. That’s why I offer great incentives to refer friends and business associates to the site ($300 each during this promotion.)  In fact, if every member brought in a new one, we could probably discontinue these promotions!

If you enjoy the site, please spread the word.  It will benefit you directly (the $300!) and probably even more indirectly.  The closer I get to my membership goal, the more bells and whistles I can offer all of you.

What I hope you won’t do is screen-grab charts and commentary and share them, or your log-in information, with non-members.  It only dilutes the value of your membership, as I spend a good 30-minutes/day unlocking folks’ accounts when they share with non-members “just this once.”

What’s Next

Back to bells and whistles: my wish list includes an administrator, improved web design, live conference calls, videos, etc.  These are all things that cost time and money, but are easily attainable as our membership grows.

I’m currently about 1/3 of the way towards my membership goal (a closely-guarded number that’s strongly correlated with my three daughters’ college and wedding plans.)  It doesn’t really compare to what I could make by returning to Wall St., but I like working for all of you instead of “the machine.”

Most of you have probably noticed our rates are increasing monthly.  This is according to plan, which calls for an annual rate of $2,500 by Jan 1.  And, I’ll probably discontinue offering monthly, quarterly or semi-annual subscriptions unless I get an administrator on board.  So, if you or someone you know is thinking about a membership, this would be an excellent time to take action.

Thanks!

Last, thanks for all of your support.  These last few months have been ridiculously volatile and seemingly without direction.  Please believe me when I say it’s as bothersome for me as it is for you.  While the volatility has generated some really great results, it’s just plain tiring.  And, those of you who can’t stare at your computer all day long often miss out on some attractive opportunities.

Ever since USDJPY (the primary engine for higher prices) topped out in December, stocks have been whipsawed incessantly.  It’s hard to say what, exactly, the BoJ is going to do.  But, it shouldn’t be too much longer.  At that point, I expect to be able to focus more on trending prices and less on intra-day swings.

Sign Me Up!

Yesterday, SPX ran all the way down to tag our lowest target, producing some great numbers (3%+) on the day.  But, the close presented a challenge that I finally addressed with the following:

FWIW, USDJPY appears likely to tag the bottom of its triangle tomorrow or overnight.  Would not be at all surprised if it does so overnight in order to allow NKD to reach 17092, followed by a bounce before tomorrow’s opening that traps today’s overeager bears.

It’s exactly what happened last night.  As we noted in the Update on the Nikkei 225 late last night, NKD tagged the next lower target that we’ve been tracking for the past several weeks.

This was accomplished by USDJPY tagging the bottom of its triangle yet again.And, now we’re facing a small gap up that has bears who held short overnight a little nervous.  Should they be?

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NKD just tagged our two next lower targets and is closing in on the third.  As we discussed back on Sep 10 [see: Sep 10 Update on Nikkei], this latest leg lower is seen as necessary to prommpting a further expansion of QQE and/or debasement of USDJPY.

It’s pretty clear that NKD’s price action has been as heavily manipulated influenced as any index.  But, in this case, another leg lower would make perfect charting sense.  It would also fit in nicely with the idea of compelling the BoJ to further expand QQE.

We expanded the target range to include not only the ,886 retracement of the rise from 16525, but the .618 of 14400 to 20990 and the 1.618 of the bounce from 18450 as well (the Fib numbers have changed a bit with the roll to the next contract month.)

Now, with NKD finally reaching the target range, we have to figure out “where to” from here; and, will it be enough to get the BoJ off the dime?

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Note: for those wondering, ThinkorSwim did a major update over the weekend — which means that our color scheme options were changed.  I’m trying this one out today — but, the jury is still out.

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USDJPY toyed around with breaking out of its triangle on Friday (purple lines below), but ultimately failed when it ran into the SMA200 — leading to a nice pop and drop opportunity we discussed early in the morning.

Note that it’s still being constrained by the SMA200 — which means SPX might not go anywhere after this morning’s initial pop.

SPX gained 20 points in the first half of the session, only to give back 30.  Now that USDJPY has retested the .618 at 120.11, we’re left to wonder how long it’ll take before it breaks out for real.

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The last time I updated our gold charts [see: Update on Gold, Jul 24, 2015] I noted that it looked like a good buying opportunity.

For those who are interested, however, it’s worth noting that GC just tagged that yellow .500 Fib level and the bottom of a fairly well-formed channel at 1072.3 that could mean a significant bounce. The initial target would be the neckline (1140) of the just-completed H&S Pattern (that targets 970.)  If things really got going, 1285 looks mighty interesting.

As luck would have it, that was the bottom.  GC spiked to 1140 within a month, a nifty 6.4% gain. At that point, it had backtested the bearish H&S Pattern that targeted 970.  It could have fallen pretty dramatically at that point.But, it didn’t.  It rose to tag a trend line (dashed, purple line) off the January highs before dropping back below that neckline.  Surely, at that point it would have continued on down to establish new lows.

But…it didn’t.  It made its way back up to tag that very same TL all over again this past Thursday — where it reversed yet again.  After five tags and five reversals, maybe that TL is telling us something.

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NKD finally tagged our next downside target yesterday, enjoying a huge 5.3% bounce afterwards.It was made possible by USDJPY.  It’s been a month since USDJPY began forming the triangle that has whipsawed markets on a daily basis.  Yesterday, after the US close, it broke out. But, it’s not out of the woods just yet.

Note that it’s still being constrained by the SMA200 — which means SPX might not go anywhere after this morning’s initial pop.

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